Nominal Rigidities and Economic Implications

A collection of vocabulary flashcards focusing on key concepts related to nominal rigidities and their implications in economics.

Nominal Rigidity

The inflexibility of nominal prices and wages in response to changes in economic conditions.

Menu Costs

The costs associated with changing prices, leading firms to avoid frequent price adjustments.

Keynesian View

The perspective that prices and wages are sticky, causing persistent unemployment and output fluctuations.

Classical View

The belief that prices and wages are perfectly flexible, allowing markets to clear and achieve full employment.

Mankiw Model

A formal model illustrating how firms with some price-setting power experience nominal rigidities.

Nominal Wage Rigidity

The failure of wages to adjust downward, leading to involuntary unemployment.

Real Rigidities

Inflexibility of real prices and wages that affects market adjustments.

Price Stickiness

The tendency for prices to remain unchanged in response to changes in economic conditions.

Countercyclical Markups

Pricing behavior where firms set higher prices during recessions and lower prices during booms.

Efficiency Wages

Wages set above the market-clearing level to motivate workers and reduce shirking.

Monetary Policy

Policy that involves the management of money supply and interest rates to influence economic activity.

Fiscal Policy

Government spending and tax policies used to influence economic conditions.

Crowding Out

The economic phenomenon where increased public sector spending leads to a reduction in private sector spending.

Zero Lower Bound (ZLB)

A situation in which nominal interest rates are at or near zero, limiting the effectiveness of monetary policy.

Macroeconomic Effects of Nominal Rigidities

The influence of nominal rigidities on the economy, leading to output fluctuations and unemployment.

What is Nominal Rigidity?

The inflexibility of nominal prices and wages in response to changes in economic conditions.

What are Menu Costs?

The costs associated with changing prices, leading firms to avoid frequent price adjustments.

What is the Keynesian View?

The perspective that prices and wages are sticky, causing persistent unemployment and output fluctuations.

What is the Classical View?

The belief that prices and wages are perfectly flexible, allowing markets to clear and achieve full employment.

What is the Mankiw Model?

A formal model illustrating how firms with some price-setting power experience nominal rigidities.

What is Nominal Wage Rigidity?

The failure of wages to adjust downward, leading to involuntary unemployment.

What are Real Rigidities?

Inflexibility of real prices and wages that affects market adjustments.

What is Price Stickiness?

The tendency for prices to remain unchanged in response to changes in economic conditions.

What are Countercyclical Markups?

Pricing behavior where firms set higher prices during recessions and lower prices during booms.

What are Efficiency Wages?

Wages set above the market-clearing level to motivate workers and reduce shirking.

What is Monetary Policy?

Policy that involves the management of money supply and interest rates to influence economic activity.

What is Fiscal Policy?

Government spending and tax policies used to influence economic conditions.

What is Crowding Out?

The economic phenomenon where increased public sector spending leads to a reduction in private sector spending.

What is Zero Lower Bound (ZLB)?

A situation in which nominal interest rates are at or near zero, limiting the effectiveness of monetary policy.

What are the Macroeconomic Effects of Nominal Rigidities?

The influence of nominal rigidities on the economy, leading to output fluctuations and unemployment.